CONVERTIBLE BOND PRICING MODELS

Convertible bonds are an important segment of the corporate bond market, with worldwide outstandings approaching US$235 billion. Simple pricing models value a convertible bond as being equivalent to a straight bond with an embedded option that enables the bond holder to convert to a specific amount of common stock. The straight bond is subject to both interest rate and credit risk, whereas the option to convert is dependent on the underlying stock price, which exposes the convertible bond holder to equity risk. The complexity of these features means that convertible bonds tend to be treated casually in major derivatives and corporate finance textbooks. This paper presents a survey of the theoretical and empirical aspects of convertible bond pricing. The limitations of these studies are highlighted to identify those areas of research that may improve the valuation process and facilitate the application of these securities for corporate financing.     

The effect of firm-level productivity on exchange rate pass-through

A heterogeneous-firm trade model can explain the recent decrease in exchange rate pass-through to aggregate US import prices as a result of decreased trade costs. This paper finds support for this explanation by testing another implication of this type of heterogeneous firm model: lower exchange rate pass-through for goods that are traded for short periods of time.     

Planning in Turbulent Times: Exploring Planners' Agency in Jerusalem

This article explores the role of planning in the deeply divided and politically polarized context of Jerusalem. The overall argument developed throughout the article is that the relation between planning and politics is a non‐hierarchical set of interactions, negotiated within specific historical, geographical, legal and cultural contexts—in other words, orders don't come down from the politicians to be slavishly followed by planners. In this respect our findings, based on in‐depth interviews with Israeli planners, suggest that the case of Jerusalem represents a particularly dramatic illustration of the fact that the function of planning expertise can only be understood in relation to the surrounding socio‐political environment. Furthermore, contrary to conventional wisdom, planners in Jerusalem are not destined to either complicity or irrelevance in the face of political imperatives; planners' agency, however, does not simply reflect their mastery of specific professional knowledge and tools, but also their ability to act strategically in relation to the context in which they operate.     

Central bank haircut policy

We present a model of central bank collateralized lending to study the optimal choice of the haircut policy. We show that a lending facility provides a bundle of two types of insurance: insurance against liquidity risk as well as insurance against downside risk of the collateral. Setting a haircut therefore involves balancing the trade-off between relaxing the liquidity constraints of agents on one hand, and increasing potential inflation risk and distorting the portfolio choices of agents on the other. We argue that the optimal haircut is higher when the central bank is unable to lend exclusively to agents who actually need liquidity. Finally, for a temporary surprise drop in the haircut, the central bank can be more aggressive than when setting a permanent level of the haircut.     

Forecasting interest rates with shifting endpoints

We consider forecasting the term structure of interest rates with the assumption that factors driving the yield curve are stationary around a slowly time‐varying mean or ‘shifting endpoint’. The shifting endpoints are captured using either (i) time series methods (exponential smoothing) or (ii) long‐range survey forecasts of either interest rates or inflation and output growth, or (iii) exponentially smoothed realizations of these macro variables. Allowing for shifting endpoints in yield curve factors provides substantial and significant gains in out‐of‐sample predictive accuracy, relative to stationary and random walk benchmarks. Forecast improvements are largest for long‐maturity interest rates and for long‐horizon forecasts. Copyright © 2013 John Wiley & Sons, Ltd.     

Hyperinflation in a small open economy with a fixed exchange rate: A post Keynesian view

This paper examines the emergence of hyperinflation in a small open economy with a fixed exchange rate from a post Keynesian perspective. Three variables play key roles: distributive conflict, external debt, and expectations about the exchange rate. First, we propose a short-run Kaleckian macro model. Then, we study the long-run behavior of the model by endogenizing the price level and foreign indebtedness. We conclude that the existence of expectations about the nominal exchange rate is crucial to explaining the emergence of hyperinflation.     

Exploring talent management in India: The neglected role of intrinsic rewards

The challenge of global talent management is critical to firm success. Even with the global economic slowdown of 2008 and 2009, there are continuing challenges in attracting, managing, and retaining talent, especially in the developing regions of the world where economic activity has outpaced the availability of skilled employees. To examine this situation, we develop and test a model of talent management across 28 Indian firms involving 4811 professional-level employees. The intrinsic rewards experienced are a critical element in employee retention, satisfaction with the organization, and career success. We explored four antecedents of intrinsic rewards: the social responsibility of the employer, pride in the organization, manager support, and performance management (PM). We found support for the importance of intrinsic rewards as a mediating variable, as well as for the moderating role of certain hygiene factors. Our research suggests multinational, international, and national employers may have non-pecuniary mechanisms to promote retention and employee satisfaction, even in challenging labor market environments. We conclude by proposing implications for research and global HRM practices.